The Mortgage Loan Pre-Approval Process - Northern Title Blog
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The Mortgage Loan Pre-Approval Process

The Mortgage Loan Pre-Approval Process

How much money can you borrow when you set out to buy a home? The way to determine this — ahead of time — is the pre-approval process.

During this process, lenders will examine a number of facts about your financial situation:

● Income
● Assets
● Credit score

These results may determine how much you can borrow — and almost more importantly — what your interest rate may be. Your interest rate could really make a difference in how much you will have to pay back over the course of years.

The difference between pre-approval and pre-qualification:

Pre-qualification is more generalized. You may not have to provide the lender with as much information as you would with a pre-approval process. A pre-qualification is just a quick overview of your financial situation. You may not have to drill down and provide a lot of paperwork at this stage, such as bank statements and pay stubs.

Pre-approvals are a bit more focused. Your lender will go over your financial statements more directly and more closely. You’ll more than likely need to have a credit check, as well as provide bank statements and pay stubs.

Pre-approval before you buy a home:

You don’t necessarily have to have your home ready to purchase in order to start the pre-approval process. In fact, it’s a good idea to get your pre-approval first, before you start house hunting. This way, you will know right off the bat how much loan money you can be approved for, and work from there. It’s a great starting point for your home-buying process.

The official pre-approval letter

The letter from your lender makes it official that you are a good candidate for a mortgage loan. Many real estate agents won’t show you a house until they know for sure that you are going to be able to properly finance it (you can’t blame them for that). Even if you are approved, agents need the pre-approval letter to know how much house you can actually afford, and that you are not looking at houses out of your price range.

When you get pre-approved, you usually get a pre-approval letter. There are a few reasons the pre-approval letter is important. First, real estate agents typically want to see your letter before they show you houses. This ensures they don’t waste time showing you homes outside your budget. Second, the letter is something you can share with the home’s seller when you make an offer. It shows that you won’t have problems getting financed for the amount you’re offering.

Steps toward pre-approval

● Your lender will ask you a series of questions (often, you can do this online. These would include information about your income and assets, and the home you want to buy (if you have a home in mind already). The lender will also do a credit check.

● If you’re approved for a mortgage, you can talk with your lender about types of loans, down payments, interest rates and monthly payments.

● You’ll receive your pre-approval letter to take to your agent.

What the lender will need once you find a home you want to buy

Once you decide upon the house of your dreams, you will proceed from pre-approval to full approval, making the loan official. Before that can happen, the lender will need to know a few things about the property in question:

The value of the appraisal

A professional appraiser will need to give the lender a report on the official worth of your property. Why? The lender wants to make sure that you are not receiving more loan money than the home is actually worth.

Proof of title

A reputable title company can provide official documents as to who owns the property and to confirm that there are no liens or claims involved. You want the property to be considered “free and clear” so there are no roadblocks to your purchase, especially after the loan is acquired.

Condition of the property

An FHA loan, for instance, requires certain property standards be met before a loan can be granted (check them out here). Basically, the house should be in good condition and present no potential safety hazards.

The benefits of getting pre-approved

Instantly organizes your house hunting

You won’t waste time looking at houses you can’t afford. You can focus on the houses within your pre-approved price range.

May help you when you make an offer

Showing a pre-approval letter shows that you are serious and have the backing to make the deal happen quickly. Just because another buyer has a “better” offer doesn’t mean that the offer will necessarily be approved. A pre-approval letter shows the seller that you are good to go.

Get the paperwork and red tape out of the way early.

Actually, the pre-approval process is the biggest part of the mortgage approval process. That’s when you show your important financial documents and know how much loan you can get. Once you make an offer and that offer is accepted, you’re basically on your way to closing.

Bottom line

The pre-approval process will save you time and effort when you are focusing on finding the right home for your budget. It will give you a good idea of how much you can afford and keep you from pursuing homes out of your price range. Your agent and the sellers you meet will take your loan pre-approval as a sign that you are serious about buying and that you are already officially ready to make a deal.